Correlation Between Arrow Electronics and Aeye

Can any of the company-specific risk be diversified away by investing in both Arrow Electronics and Aeye at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Arrow Electronics and Aeye into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arrow Electronics and Aeye Inc, you can compare the effects of market volatilities on Arrow Electronics and Aeye and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Arrow Electronics with a short position of Aeye. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arrow Electronics and Aeye.

Diversification Opportunities for Arrow Electronics and Aeye

0.7

Correlation Coefficient

Arrow Electronics  Aeye

Poor diversification

The 3 months correlation between Arrow and Aeye is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Electronics and Aeye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeye Inc and Arrow Electronics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Arrow Electronics are associated (or correlated) with Aeye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeye Inc has no effect on the direction of Arrow Electronics i.e., Arrow Electronics and Aeye go up and down completely randomly.

Pair Corralation between Arrow Electronics and Aeye

Considering the 90-day investment horizon Arrow Electronics is expected to under-perform the Aeye. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Electronics is 2.01 times less risky than Aeye. The stock trades about -0.05 of its potential returns per unit of risk. The Aeye Inc is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  119.00  in Aeye Inc on August 31, 2024 and sell it today you would lose (12.00) from holding Aeye Inc or give up 10.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Arrow Electronics  vs.  Aeye Inc

Arrow Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Aeye Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeye Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Aeye is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Arrow Electronics and Aeye

The main advantage of trading using opposite Arrow Electronics and Aeye positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow Electronics position performs unexpectedly, Aeye can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Aeye will offset losses from the drop in Aeye's long position.

The idea behind Arrow Electronics and Aeye Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.